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Gold, gold, gold!
A short article on gold, looking at its recent price surge, why people
feel they MUST have gold, a secret conspiracy theory
concerning central governments gold reserves, and finally, experts
predictions for the future price of gold.

Gold, and the price of gold, is a HUGE story at the
moment. Its been up and down like a roller coaster. So why the interest
in gold?

Gold is traditionally seen as a safe haven for investors.
During times of global insecurity, people have always bought and held
gold.

It happened in 1970’s and 80’s when the gold price
soared by more than 24 times. £25,000
invested in gold in ’71 was transformed into over £500,000
by 1983.

Many investors made an absolute fortune. Sadly many others missed the
boat and have been kicking themselves ever since.

And yet, it looks like its starting to happen all over again. Right now.
Gold has moved from $280 an ounce to $720 in
May this year. some analysts are still tipping gold to reach $1000
an oz or more by the end of this year. Many gold analysts see the recent
price surge over $700 an ounce as an initial wave, before a far
greater wave later this summer.

Clem Chambers at ADVFN has set this movement at "$1,000
an ounce this year", the metals consultancy GFMS thinks it will "hit
$700 either later this year or early next year" and James Turk at
Goldmoney.com has said "I think we will go well above $1,000 per
ounce of gold before this cycle is over."

Why is gold rising in value?

There seem to be some clear reasons.

Gold reason 1: Global insecurity,
terrorism in the west, the Iran nuclear programme (and the US reaction
to it), North Korean missiles, the ongoing wars in Iraq and Afghanistan,
bombing in Egypt, Chinese sabre rattling over Taiwan, the election of
Hamas in Palestein and pandemic scares of bird flu. All create fear which
causes people to seek the safety of gold.

Gold reason 2: Oil prices continue
to climb higher due to an increasing global demand for diminishing resources.
The main oil fields in the Gulf are being pumped flat out, yet the demand
from China and India continues to grow. Major unrest in oil-producing
countries like Nigeria and Venezuela, threaten oil supply, as do terrorist
attacks on Saudi oil refineries, and hurricanes battering American refineries.
This results in higher energy prices that go on to cause inflation
- and gold is a traditional safe haven against inflation.

Gold reason 3: Exploding
demand for gold by the Indians and the Chinese. Their economies
are booming and their middle classes are celebrating by buying gold. In
2005 the gold jewellery market used up a massive 2,736 tonnes of gold.
In the US, according to the US Treasury, gold American Eagle coins are
being bought in record numbers.

Yet all this is at a time when there is less gold
around. The World Gold Council notes that supply in 2006 dropped 20% from
the equivalent quarter in 2005. More gold is being consumed than is being
mined and as Pierre Lassonde, president of Newmont Mining, puts it “Even
if gold was $1000 an ounce, it still takes four to seven years to open
a mine.” If gold is scarce, and people want it, they pay more for
it. Therefore the price of gold goes up.

Gold reason 4. And finally cash
is trash. The US dollar is crippled by huge
trade and domestic deficits. Last year the US notched up $662 billion
in trade deficits and the domestic debt stood at over $500 billion! US
consumers are up to their eyeballs in debt to the tune of 200% of GDP.
This knocks confidence in the dollar, and one of the best ways to get
rid of this debt is to inflate it away by devaluing the paper currency.
Jim Jubak on MSNMoney.com states that “the easiest, and
perhaps only politically appealing, way for America to deal with its massive
debt load is to inflate its way out”.

Inflation has ALWAYS worked for governments in debt
in the past.

The US Fed stopped publishing the M3 data, (the rate
at which they print paper money) so that economists can no longer calculate
true inflation. John Maynard Keynes said “Not one person
in a million understands inflation” and the Fed intends
to keep it that way.

Adrian Ash writing in Money Week (26May 2006) shows
that since 1913, when the Federal Reserve System, America’s central
bank was setup, the dollar has lost 99 percent of its value.
A dollar now is worth a nickel then. In Alan
Greenspan’s tenure, roughly the last twenty years, the dollar has
LOST HALF its value. It buys HALF
the stuff now than it did then. And what if it halves again in the next
twenty years (which it will do with inflation at just 3%)? This is REALLY
BAD NEWS for anyone with savings or a pension. Could
you afford to see your savings halve in value? Cash would seem
to be trash.

So why hold on to paper money when its going to be
worth less in the future?

Why do people put faith in paper money, which has ZERO intrinsic value?
It’s just pretty printed paper backed only by the word of a central
banker! It gets devalued constantly by inflation.

Yet gold holds its value. In 1998
the World Gold Council said that one ounce of gold would buy the same
amount of bread as it did at the time of Nebuchadnezzar, more than 2,500
years ago. The Smart money seems to be convinced, and is moving away from
the dollar and into gold. The Chinese and Japanese central banks are starting
to ‘diversifying’ their huge US dollar stockpiles into stores
of real value - including African mineral mines, oil fields, and …
gold.

All these factors have led to analysts predicting
GOLD RISING EVEN FURTHER in price over the next 3 to
5 years.

Daniel Sacks, manager of Investec’s Global
Gold Fund has the price going even higher stating that even at over $600
an ounce, gold is still well below its 1980‘s $800 peak
- which adjusting for inflation would be around $2,000
in today’s money.

Christopher Wood; emerging market analyst at CLSA,
a division of Credit Lyonnais, says:” Gold is at the very beginning
of a multiyear bull market that will take gold many
times higher than the present level. Gold is not going
to start attracting the attention of mainstream investors until it starts
appreciating in all currencies, rather than just the US dollar. This hasn’t
happened yet, but it will. “ he has a gold bullion price target
of $3,400 an ounce within
the decade.

And all this is based on the well known factors
stated above; the US government debt, the dollar devaluing (down against
the Euro nearly 40% in five years), the Iran situation, the Iraq war,
North Korea, the bird flu, the surging demand for gold jewellery, the
rocketing oil price and energy crisis! - and all this ignores the HUGE
PRICE SURGE that would be caused by the conspiracy theory of
banks being forced to buy back gold.

So the question is simple, is the price of gold going
to rise further?